Are Non-Compete Agreements Enforceable in North Dakota?

As any typical attorney would say, it depends.  The North Dakota Supreme Court has recognized “North Dakota has a strong public policy against non-compete agreements.”  In general, North Dakota has been quite adverse to the enforcement of non-compete agreements and there is case law to back that aversion up.  Other states, such as South Dakota, have taken a different approach and have for the most part embraced non-compete agreements.  Even though North Dakota is adverse to non-compete agreements, they are still allowed in limited applications.  In 2019, the North Dakota legislature expanded the allowed application of non-compete agreements.  Non-compete agreements are generally governed by North Dakota Century Code § 9-08-06.  In this article I am going to address the basics of when non-competes can be enforceable in North Dakota.  

Is my non-compete valid? 

There are three essential elements to determining a noncompete is valid in the state.  Now the following summary is no substitute for consulting with an attorney.  There is nauence and other considerations, these rather are a starting point to determine enforceability.  The three include:

1. Reasonable Geographic Area: A non-compete agreement is valid for a reasonable geographic area.  Prior to 2019, a non-compete agreement was limited to a county or city.  At this point, the North Dakota Supreme Court has not given us case law as to what defines a reasonable geographic area.  Secondly, there is some ambiguity as to what law would apply to a non-compete agreement signed prior to 2019.  Courts do not enforce illegal agreements.  Prior to 2019 many non-competes contained illegal clauses which expanded beyond a city or county. The contract language might in fact be legal after 2019.  Courts in numerous other jurisdictions have determined that determining the legality of a contract is to be interpreted based on the law in place at the time of signing.                                                                     
2. Reasonable Time: North Dakota does not have concrete reasonable time elements established by Supreme Court case law but 5 years has generally been held to be reasonable..  The reality is, is that North Dakota is a small state and case law doesn’t always have the opportunity to establish robust case law rulings.  Other states have interpreted a reasonable time base on the nature of the non-compete and the parties signing the non-compete.  For example, if the non-compete is not based on trade secrets some states have determined a reasonable time is unreasonable if it is more than 2 years.  On the other hand if non-competes have been found reasonable for up to seven years when an equity owner sells a business with trade secrets. 
3. Location of Business: The North Dakota Century Code has made it pretty clear that non-compete must pertain to a limited geography.  That limited geography must be a geography in which the business transacts activity.  For example, a non-compete would arguably not be enforceable if a Cass County business had a noncompete for Burleigh County and the business had no business in Burleigh County.  

This whole analysis may change in the near future as the United States President Biden issued an executive order on July 9, 2021.  The executive order stated, “…the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses….”  If the FTC does take such action, the noncompete landscape may significantly change. 

At Fargo Patent and Business Law, we have experience running businesses and understand business.  This unique trait can help bridge the gap between the needs of business and the demands of the legal system.  If you have a question, please don’t hesitate to reach out.

Fargo Patent & Business Law, PLLC – in**@fa************.com – 701-566-7571